Jason G. Wilson:
Thank you, Mr. Phipps, and good morning, ladies and gentlemen. Since the McKinsey Study in 2011, the competitive environment and underlying indicators for the health of the sport have changed considerably. We're at a critical point, and it's important to remain faithful to the blueprint they set forth. So I am here today to provide an update on what the sport is doing to address the findings of that study.

As you may recall, Dan Singer and Michael Lamb presented a bleak future for Thoroughbred racing unless we made some changes. Based on their research, the key indicators for the sport were set to continue their decline with handle projected to drop by as much as 25% by 2020. The decline in handle has slowed considerably since then. While McKinsey forecasted 2014 handle to be $10.1 billion last year, the sport was able to generate $10.6 billion. There are likely a host of factors that account for this development, but I believe that our efforts to bring more television and our earned digital and social media played a key role in keeping fans engaged.

Other indicators, however, put the ability to sustain handle at this level in doubt. The underlying causes for the decline of racing have created a more difficult operating environment. Most notably, the foal crop declined more sharply than McKinsey anticipated.

Yesterday we announced the projected foal crop for 2016 to be 22,500. In comparison, McKinsey projected the foal crop to be 25,100 for 2016. Any reduction in foal crop adversely affects the number of starters.

Data from Equibase indicates there are 20% fewer starters in 2014 than in 2010, and that trend will continue as larger, older foal crops are replaced by the smaller crops. In turn, we can expect the lower number of starters to reduce handle.

In addition, the competition that we face from other forms of gambling has become more intense as major sports leagues have indicated that they can embrace gambling. Online gambling continues to gain support at the state level and daily fantasy sports games have gone mainstream.

I'll speak more about daily fantasy sports games in a few minutes, but this is a phenomenon that's quickly become big business with more than $750 million in investments by several large media companies in deals with major sports leagues in just the past few years. This level of interest suggests that daily fantasy sports games are not a flash in the pan.

McKinsey also noted that racing's distribution is extremely fragmented. In their view, no other major sport has lost control of its distribution to the extent that racing has. This has resulted in not only poor distribution of our product, but also diminished third-party investment in the sport. When potential investors have to deal with multiple entities to get started, it becomes more difficult and they look overseas where it's easier to get the content and the relationships that they need. One example is Longitude, the New York based creator of single‑pool wagering. Single‑pool wagering provides increased liquidity, real-time odds, even for exotic bets, and the ability to launch new bet sites quickly. Longitude initially launched in Hong Kong where it has calculated more than $2.2 billion in the first 18 months of use, so far it has not cracked the United States market.

Finally, McKinsey cited brand perception as a drag on the sport’s popularity. In short, the general public did not have a high opinion of Thoroughbred racing, especially in relation to other sports in competition. To counter these trends McKinsey prescribed nine recommendations to help the sport. The first three were designed to strengthen the brand of racing, these include racing integrity forms, creating better tools for owners to obtain information, and sharing best practices among tracks and other constituencies. Two racing integrity issues were one, animal welfare, specifically what to do with horses once they retire, and two, comprehensive overhaul of medications, regulations and penalties. Medication reform will be addressed later in the program, so I'll touch briefly on animal welfare.

Over the years, the care of retired racehorses has been an issue for the sport. Recognizing the need for comprehensive action in this area, several of the sports organizations created the Thoroughbred Aftercare Alliance or the TAA, the TAA receives funding from these organizations and others and in turn provides certifications and best practices and provides grants. While there is still work to be done in this area, the TAA and other organizations are providing leadership in caring for retired racehorses.

The next recommendation focused on ownership. McKinsey noted that owners are looking for more transparency and information. So in 2012 we launched OwnerView in connection with the Thoroughbred Owners and Breeders Association. OwnerView is a comprehensive resource to provide owners with information on a wide range of topics. The site has attracted 345,000 visitors and received positive reviews from owners.

Building on the success of OwnerView, we held the first national conference dedicated to owners last October. The first Thoroughbred Owners Conference at Keeneland attracted more than 300 attendees, and the next will be at Gulfstream Park the week before the Eclipse Awards in January. I hope to see many of you there.

The third recommendation was to build mechanisms for sharing best practices so we can move innovations among tracks rapidly. There has been some information among these lines, but they have been ad hoc and could use more formal implementation. So those are the recommendations around brand perception. To reiterate, if we do not address our branding issues, we leave it to bad press to define who we are in the public's minds.

The fourth recommendation was the declining foal crop and that was to focus on fewer races for national scheduling. Based on optimistic assumptions, McKinsey estimated that nearly 50% of the races failed to generate enough takeout to cover the purse and the variable cost to cover the races that day. The information shared earlier on the foal crop will only make the situation worse. As Martin Panza noted from this stage last year, the number of races that we have is simply not sustainable.

McKinsey advocated moving aggressively to reduce the number of races so they do not overlap. They showed we could reduce racing while at the same time increase handle, and seeking more flexibility in scheduling, reducing the number of races and redistributing purses and attracting more starters by paying out to last place.

We've seen that less racing does not mean a similar reduction in handle. From 2011 to 2014, the number of races declined by 9% while handle declined by only 2%. So with a little planning we could achieve less racing while maintaining our handle.

McKinsey recommended that we develop a resource to help tracks forecast profitable races and race days and manage their inventory more efficiently. InCompass Solutions has developed several tools to help racing secretaries create their schedules, manage their horse inventory and fill their races. These have been implemented in 90 tracks across the country, and in 2016, these tools will allow trainers and owners to enter horses via their smartphones, tablets and computers.

Overlapping races, however, remain a problem as highlighted in the Blood‑Horse article just last week.

The fifth recommendation was to adopt innovative wagering platforms. Here the record is not so great. McKinsey noted in its research that core bettors expressed that most races do not have enough liquidity to be of interest, and they'd like to see odds in real time. In addition, the adoption of other types of wagering could spark interest among younger fans. They looked at single‑pool wagering, exchange wagering, and a TRPB tote security system as ways to address those concerns.

To date none of these have been launched in the United States, although exchange wagering may be available in New Jersey by the end of the year.

The sixth recommendation was to create an integrated award system that linked to the tracks in the ADWs. On this front, McKinsey pointed out for the casual fan, the takeout rate was appropriate based on the hourly cost of betting. However, for the core fan whose betting behavior was much more frequent, the cost of betting was not competitive. Yet in large part we treat these customers the same.

At the same time, our competition dedicated significant resources and significant systems to determine the optimum levels of rebates and rewards and to create incentives for more betting while segmenting their customers. So McKinsey recommended that the tracks — who still have the most important customer relations in the business — leverage ADWs. In fact, integrated ADWs built on a strong technology platform with world-class database marketing could provide an unmatched experience for the best bettor while also providing a new vehicle for new fan development.

Larger tracks, especially those affiliated with the national ADW, have been quick to adopt this model while smaller tracks have lagged behind.

The last three recommendations were centered around fan development, because you know television, even in the Internet age, remains the most effective way to reach new audiences, create awareness and build an avid fan base. They suggested creating programs supplemented by games that could be integrated into the coverage and serve as a way to educate people about racing through entertainment. They saw the emergence of social media platforms as a way to use these games to reach a mass audience in an authentic way. Since then, the proliferation of smartphones and mobile devices has fuelled an explosion of mobile games as well.

There have been several games launched in the past few years, and though the ones we've created did not achieve commercial success, there are those that have gained traction such as Blazing Silks, which has attracted more than 786,000 followers and has 10,000 monthly users.

We continue to look at ways to create games and increase engagement with the sport. As I mentioned earlier, daily sports fantasy games are being accepted by other sports. These games provide fans with ways to engage sports in different ways and if done correctly a game in this area could be very beneficial to this sport.

On the television front we've seen a lot of momentum. Earlier this year TVG acquired the operations of HRTV, and while this is not an area of the McKinsey study, we see the consolidation of our racing channels under one roof as a positive development.

With respect to national television, when we commissioned the study, only a handful of races were scheduled to be shown outside the Triple Crown and the Breeders' Cup.

Three years later we had 22 racing events outside of those races covered on two national networks, NBC and FOX. And each year since 2011 we've seen overall audience and average audience per show grow. In fact, this year the total viewing of horse racing surpassed total viewing for 2012 in early July before the highly viewed Haskell telecast. This success has given comfort to NBC to extend its deals for the Derby, Belmont Stakes and Breeders' Cup, and its long‑term commitment allows the sport on building audiences and sponsors without the pressure of having to negotiate a new arrangement every few years.

Our focus for the next phase of television programming will be working on consistency year over year and time slots week over week to help build familiarity with racing's big days. We also continue to add innovations and productions such as integrating and using social media to amplify the live racing shows. We've been working with Breeders' Cup and the tracks to continue to refine and improve the presentation on national television. The core of this last group of recommendations touch on reconnecting with the mainstream.

To help in those efforts, we created America's Best Racing, a multi‑media platform to introduce fans to horse racing. One of the people working diligently to promote racing platform is Penelope Miller, our senior manager of Social Media. She's here to provide an update on how ABR is doing. Penelope…